German economic institutes cut forecast for 2025 to 0.1% growth, sources say

The German economic outlook for 2025 has been revised downward by key economic institutes, reflecting a cautious stance amid global uncertainties and domestic challenges. 1. **Ifo Institute's Optimism with a Cautious Tone**: - The ifo economic institute reported an improvement in German business sentiment, with its closely watched business climate index reaching its highest level since April 2024. Despite this optimism, the institute's president, Clemens Fuest, remains cautious, indicating that the recovery may not be uniform across all sectors. 2. **KfW's Revised Forecast**: The state-owned investment and development bank, KfW, has revised its forecast for 2025, predicting a slight economic growth of 0.2%, up from previous expectations of stagnation. This suggests that while there is some optimism about the future, the growth prospects are modest. 3. **Chambers of Industry and Commerce's Warning**: - The German Chambers of Industry and Commerce (DIHK) has warned that Germany's current energy transition strategy could cost as much as 5.4 trillion euros by 2049. This long-term forecast implies significant challenges for the economy, particularly for businesses, which could impact growth in the short to medium term. 4. **Chemical Industry's Struggles**: The chemical industry, a key sector for Germany, has faced a decline in production, sales, and prices in the second quarter. The VCI association has reported that production fell by 3.8% quarter-on-quarter, and the sector's revenue dropped by 2.7% compared to the same period last year. The industry is operating at reduced capacity, with facilities running at only 71.7% capacity. 5. **Order Shortfall and Weak Demand**: The chemical and pharmaceutical industry has experienced a significant order shortfall, with production facilities operating at reduced capacity. The lack of demand, particularly from key customers like the automotive and construction industries, is a significant concern for the sector's outlook. In conclusion, while there are some positive indicators, such as improved business sentiment and a slight growth forecast, the overall outlook for the German economy in 2025 remains cautious. The potential long-term costs of the energy transition, combined with current sector-specific challenges like those in the chemical industry, suggest that the growth prospects are modest. Economic institutes have indeed cut their forecast for 2025, with some sources indicating a growth rate as low as 0.1%.